McCain helped businessman buy Fort Ord land for a fraction of its market value

MONTEREY -- An Arizona businessman, with help from Sen. John McCain's office, paid the federal government a mere fraction of the market value when he bought a Fort Ord land parcel in 1999, an Army appraisal obtained by The Monterey Herald shows.

Donald R. Diamond, an 80-year-old real estate developer, lobbyist and top fundraiser for McCain's presidential campaign, bought the land for $250,000, though it was valued at $7.2 million, according to Pentagon appraisals made three years before the sale.

He held on to the parcel for a little more than two years before selling it and the buildings on it for an estimated profit of more than $18 million.

When negotiating with the Army over the no-bid sale, Diamond had more than one advantage on other potential buyers. He held a lease on the land that would have made it difficult for the Army to find another buyer. When Rep. Sam Farr, D-Carmel, later criticized the Army for "giving away" Fort Ord land during the 1990s, Deputy Assistant Secretary of the Army Paul "PJ" Johnson said, "That was a very complicated realignment and closure at Ford Ord." Johnson retired later that month.

But it was McCain's office, as reported earlier this year by The New York Times and The Monterey Herald, that Diamond credited with helping smooth out problems he encountered. At the time, McCain served on the Senate Armed Services Committee.

The appraisal documents were obtained under a Freedom of Information Act request. Diamond and McCain's Senate office both declined to comment.

The Fort Ord property in question is home to the SunBay apartments and condominiums -- an enterprise whose history dates to the 1980s savings and loan crisis.

Now rented to a largely civilian population, the 297 apartments are set in attractive, Spanish-style clusters on 24 acres bordering the Bayonet and Black Horse golf courses and the Seaside Highlands development.

The units were built by a private developer in the 1980s, when the Army desperately needed housing and, as a result, offered the builder a generous $1 lease on the land for 50 years. For five decades, the builder could own the structures -- not the land -- and collect market-rate rents. When the lease expired, ownership of the apartment buildings was to revert to the Pentagon. The appraisal of the buildings and land together totaled $21 million.

But when Fort Ord was dismantled in the 1990s, everything changed.

It was around that time that Diamond was introduced to SunBay. His fellow Arizonan Cary Marmis -- the apartments' builder -- had been ordered to dispose of his holdings. Federal court filings show Marmis had defaulted on loans from his bank.

With Marmis' real estate holdings to be sold off by the congressionally mandated Resolution Trust Corp., Diamond bid on and bought several properties that included SunBay, said Dick Fitzgerald, the onsite project manager for Diamond's developments in Fort Ord.

Saying it was a private business matter, Fitzgerald declined to state how much Diamond paid for the lease and a mortgage on SunBay's buildings, but Diamond has estimated his total investment in the land and buildings at around $10 million.

In a court deposition, Diamond said a deal was struck so that 10 percent of SunBay's ownership reverted to Marmis and his wife. County real estate documents confirm that Marmis' company became part owner of the apartments with Diamond.

As Fort Ord began dismantling, Diamond, as leaseholder, was interested in buying the land underneath his apartments. But in his deposition in the Bakewell case he talked of complications in the deal.

With the likelihood looming that Washington would insist the Army sell off nearly all its Fort Ord acreage, the Pentagon ordered an independent appraisal of the SunBay site by the Sacramento firm Smith Denton Associates Inc. In a report dated July 15, 1996, the appraisers said the goal was to determine a range of estimates in order to better negotiate with the leaseholder, Diamond.

Though the Army appeared willing to accept a discounted price, there were a number of sticking points.

A February 1997 "negotiators' report" by the Army indicated Diamond's company had concerns over price, future water allocations and whether more apartments could be added to the complex.

Under oath in a taped interview as part of the Bakewell lawsuit, Diamond said McCain came to his assistance after the purchase negotiations became "bogged down."

"I asked him if he could help expedite it," Diamond said.

Although McCain's Senate office did not respond to questions from The Monterey Herald, earlier this year a McCain spokeswoman told The New York Times that the senator "had done nothing for Mr. Diamond that he would not do for any other Arizona citizen."

Diamond, however, is no ordinary constituent. Besides being a leading developer in McCain's home state, he is a pro-Israel lobbyist in Washington, D.C., and is among the elite "innovators" group whose members have individually raised $500,000 or more for McCain's presidential bid, according to the candidate's campaign Web site.

Diamond also served as national finance co-chairman for McCain's presidential exploratory committee, and in court documents he describes himself as a longtime friend of the Republican senator.

Farr found it more than a little unusual an Arizona senator would become involved in a land deal in California.

"This to me was just sort of out of the box," Farr said recently. "Senators don't usually mess around in other states."

Diamond said McCain assigned Ann Sauer, a senior aide to McCain at the time, to the case.

Sauer was well-known around the Pentagon and had previously worked as a staff member for the Senate Armed Services Committee. Sauer declined to comment for this story.

Fitzgerald said Sauer set up a meeting for him with Johnson, the deputy assistant secretary of the Army.

"That was the extent of her involvement to the best of my knowledge," he said.

But in his deposition, Diamond said Sauer stepped in after the initial meeting and "got the thing resolved" when negotiations reached a stalemate.

Years later, he thanked her for the help "because it was taken care of," Diamond said in deposition. "In some way, she showed up and got the thing resolved, and at some time when I was in Washington I met her ... to thank her."

The recently released Army documents show that after the independent appraisal was turned in, some in the Pentagon reasoned the government couldn't get full market price for the land because it was encumbered by Diamond's lease, which still had 40 years left to go.

While the independent appraisers supplied estimates in the millions, the Army reappraised the land taking into consideration the lease and assuming the land and building would still be worth $21 million when the lease ran out 42 years later. Taking into consideration those factors, they figured the plot was worth less than $300,000 at the time.

The premise the land and buildings would be worth $21 million some 42 years later was incorrect. Given an appreciation rate of, for example, 4 percent, the property could actually be worth several hundred million dollars in four decades.

Even so, the documents show Army officials were not eager to accept Diamond's original offer made in a draft purchase agreement. A Feb. 14, 1997 government memo states that Diamond at first offered $125,000 for the land, an offer the Army refused.

"PJ" Johnson ultimately signed a memo approving the $250,000 SunBay sale in 1999.

In 2001, just over two years after he bought the land, Diamond sold SunBay -- the land, the buildings and the lease -- to a Northern California developer for $28 million.